Settlement allows merchants to collect credit card surcharges

Merchants can now impose surcharges to recoup the cost of accepting credit cards, as a result of a class-action settlement against Visa and MasterCard. But local small businesses say they won't be passing along the fees to their customers.

Plaintiffs in the case, which was heard in the U.S. District Court in the Eastern District of New York, claimed that merchants paid excessive fees to credit card companies, who conspired to keep the fees high. A $7.25 billion settlement was made last year and, as part of a preliminary judgment in connection with the case, merchants were allowed, beginning Jan. 27, to charge customers the fees that the businesses usually pay themselves when payment is made with a credit card. Fees cannot be applied to debit and prepaid-card purchases.

Credit card processing fees typically range from 1.5 to 3 percent, according to the Electronic Payment Coalition, an industry group of electronic payment processors that includes Visa and MasterCard.

For small businesses with tight margins, the charges can add up, said J. Derieck Hodges, a certified financial planner at Financial Planning Advisors Inc. in Cape Girardeau.

For "mom and pop shops," fees create a significant business expense, he said.

"Credit card processing fees do take a huge chunk of profits," said Crissy Mayberry, owner of Kids Bazaar, a consignment boutique for children's clothing, gear and accessories on North Main Street in Cape Girardeau.

A flat fee is charged to merchants for every transaction, along with a percentage of the sales price, depending on the type of card, she said. Cards with better customer perks cost more to process. There are additional fees if someone's card can't be swiped and the numbers have to be keyed in manually. And more fees for closing out daily transactions paperwork, Mayberry said.

"By the time all is said and done you can be paying anywhere from 3 percent to 50 percent -- if the transaction is only $1 or $2 -- of the transaction to the credit card company," Mayberry said.

Customers are using plastic more than cash these days, some retailers said.

"I would say that about 70 percent of my customers use a credit or debit card, and I don't see that number going down any time soon," said Laurie Everett, owner of Annie Laurie's Antiques on Broadway in Cape Girardeau.

Claire Bruce, owner of Sloan & Themis, a specialty boutique selling handmade, vintage and create-your-own accessories, also on North Main Street, said 58 percent of her sales are from debit or credit cards. Overall, she said, 1.6 percent of her profits go to credit card fees.

Despite the savings it might represent for their bottom lines, none of three local business owners said they would charge customers the service fees, as now is permitted by law.

"Customers are already concerned with the price of items and adding an additional 3 percent would deter customers, in my opinion," Everett said.

About one in five customers at Sloan & Themis, aware of the challenges small business owners face, offer to pay cash to save her the fees, Bruce said.

Merchants negotiate with card companies over the rates they pay for transactions, and large chains have more bargaining power than smaller operations. Many large national chains have said they won't level a transaction surcharge, either.

Hodges said most merchants consider the cost of processing fees and adjust prices accordingly. In effect, he said, customers who use cash are subsidizing the cost of purchases made by credit-card users.

Merchants, whether brick-and-mortar or online, are required to clearly post their policy if they charge processing fees and Hodges encouraged consumers to be aware of the possibility, just as credit-card users have become aware of safety around identity theft issues.

"It's just one more thing we have to be careful of when we use credit," Hodges said.

According to published reports, after a similar 2003 ruling in Australia, few merchants charged the fee, but the notion gained traction over time and now one-third of merchants such as supermarkets, hotels, stores and utilities charge an extra fee to credit-card users.

The fees remain illegal in 10 states: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. Appeals are expected and a final ruling will be made later this year.

salderman@semissourian.com

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